Rare stories in your inbox.

Oops, you forgot to select a newsletter. Select as many as you'd like!

Oops, you forgot to tell us your email address. Try again.

Advertisement

By Nathan Keeble

After seven years, Republicans finally have the chance to fulfill their promise of repealing Obamacare. With Republicans in control of the legislative and executive branches of the federal government, the only thing standing in their way is themselves, apparently a formidable foe.

Titled The American Health Care Act, the Republican establishment unveiled their plan to repeal and replace the Affordable Care Act, and it was quickly met with controversy among members of their own party.

For his part, Trump has intervened to threaten any lawmaker who opposes the establishment. “He made it very clear he’s all-in on this legislation,” said Representative Kevin Brady after a rough meeting with the president. It was a central pillar of his election and, arguably, swung the election in his favor (he had one job). He is now using his power to do something very different from what one might have expected.

Senator Rand Paul has chosen to refer to the AHCA as Obamacare-lite. It’s an apt name, as the bill keeps in place the majority of the Obamacare law, namely the supposedly popular provisions. These huge compromises have caused Senator Paul and members of the Freedom Caucus to openly oppose the AHCA, and with good reason. By picking and choosing the parts of Obamacare they think are politically expedient instead of the full repeal they promised, the GOP’s proposed bill will exaggerate the ACA’s problems instead of fixing them

How Obamacare Broke Heath Insurance

To understand the problems with the AHCA, one has to understand some of Obamacare’s main provisions, the reasons they exist and how they all fit together. The original purpose of the ACA was to provide insurance coverage to those who had preexisting conditions. The first step taken to achieve this goal was simply to prevent insurers from rejecting these people. However, if the ACA’s architects had stopped here, insurers would simply have offered plans to cancer patients, for instance, that had million dollar premiums, and their goal would have gone unaccomplished.

This potential “loophole” lead to the provision that gave us the community rating system, which forced insurance companies to charge everyone essentially the same price for similar plans, with a small amount of leeway given factors like age. Community ratings brought about their own problems, however. With insurers forced to accept everyone and unable to charge more for preexisting conditions, people would have no reason to buy insurance until they became ill.

Further spurred by the necessary rise in premiums, healthy people would begin to refrain from buying insurance, forcing premiums to rise more, and so on until the health insurance industry failed entirely. Referring to this sequence of events, free market economists coined the now famous “death spiral” term.

The death spiral is obviously very bad, and it prompted the most infamous of Obamacare’s features, the individual mandate. The individual mandate created a tax penalty for those who didn’t hold an approved plan for the entire year. By forcing everyone into the health insurance pool, the ACA’s framers hoped to avoid the death spiral, with subsidies and other mechanisms added into the bill to further encourage the purchase of insurance.

The Death Spiral Happens Anyway

At this point, the ACA’s architects were pleased with their work. They had thought through the consequences of their legislation more thoroughly than most, after all. However, they failed to consider the same factor which is the ultimate failure of all central planners: their necessary ignorance of market conditions and how best to handle them.

The individual mandate failed to coerce enough healthy people to purchase insurance in order to cover the newly added ill. As insurance pools have worsened, and increased demand for health care without a subsequent rise in doctors and hospitals has driven prices up, premiums have grown massively. The death spiral is occurring despite Obamacare’s attempts to prevent it.

Insurance companies are hemorrhaging money and going out of business. Some areas now have only one supplier, with 16 counties in my own state of Tennessee having no provider at all. The ACA, like all attempts at central planning, is a failure. At best, the individual mandate’s only effect has been a somewhat slower death spiral.

The AHCA’s Major Blunder

Obamacare is a clear example of Ludwig von Mises’ famous adage that government interventions necessitate more and more interventions to fix the problems they create. The fact that the ACA’s provisions are all intertwined is also clear. To avoid an even bigger disaster, all of them need to be repealed at once. But for reasons that are very likely political, the Republican establishment has chosen a weak and compromised bill which keeps the requirements for preexisting conditions and community ratings but does does away with the individual mandate. In other words, the ACHA removes Obamacare’s funding mechanism but keeps the requirements that made it necessary in the first place.

In the individual mandate’s place is a mandatory 30 percent surcharge, payable to insurance companies, for those who go without coverage for a prolonged period of time and then choose to purchase another plan. This surcharge is wholly insufficient to fulfill its purpose. Whereas the individual mandate punished people for not purchasing insurance, the surcharge punishes people who’ve decided they do want to buy it. It provides people with very little incentive to continue paying their huge premiums while they’re healthy. Insurance providers simply couldn’t survive in such a distorted environment.

The GOP’s sacrifice of principles for votes will likely result in a loss of both. If the ACHA passes as is, the health insurance market would collapse in an even more rapid death spiral, and this time the Republican party will be on the receiving end of the political blowback. Indeed, the ACHA’s inevitable failure would create the perfect political environment for a push towards a single payer system. The left will undoubtedly frame the ensuing chaos as to blame deregulation and the free market, when it truly lies in Obamacare and the Republican party’s spinelessness to propose a proper repeal.

Free Markets are the Solution

The Republicans should give the American people what they promised: a repeal of every word of Obamacare. A real repeal is only the first step to repairing health care, however. A repeal must be followed with true free market reforms, particularly those recently proposed by Senator Rand Paul. However, as Warren Gibson wrote for FEE in his 2015 article, the ideal solution is a complete separation of the state and the health care industry. Only free markets can provide the cheapest and highest quality health care to the largest amount of people.

Nathan Keeble helped start the Campaign to End Civil Asset Forfeiture in Tennessee. This article was originally published on FEE.org. Read the original article.